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Fundraising Doors Opening for Small Firms?

Small firms in the United States will soon be able to raise money on Wall Street faster than you can say “jackpot”!

The Jumpstart Our Business Startups bill signed by President Barrack Obama allows small businesses more access to fundraising and investors while providing fewer regulatory burdens which give these new-comers all the flexibility they need to operate in a post-crisis environment.

The JOBS act which received bipartisan support provides small businesses that need capital with many options that were previously unattainable. The provisions of the act are mainly aimed to help the IT industry, fast growing operations like biotech and tech companies. Small businesses however have a lot to benefit from this act as well.

In order for entrepreneurs and startups to raise funds to launch an idea, they usually rely on “crowdfunding”, raising money from everyday folks, on platforms such as Indiegogo or Kickstarter. Contributors however, couldn’t buy shares in a company itself and take part in its profits and losses.

The new law redefines the concept of crowdfunding for seeking actual investors. It can raise up to $1 million this way. To protect investors, those with a net worth of less than $100,000 may now invest 5% of their yearly income or $2,000, whichever is higher. Wealthier types can invest up to 10% of their income.

Solz, a San Francisco clothing and accessories company, raised thousands in donations in the past because of crowdfunding. CEO Brad Carrick hopes that the new law will allow him the possibility to sell small shares of his company for $1,000 to $10,000. “When you pull these people together, you can get a mini-angel investment round”, said Carrick, referring to venture capital that plays a crucial role in funding startups.

As previously mentioned, the law will also benefit small businesses by helping them find accredited investors and here we are talking about those with a net worth of $1 million omitting the value of their primary residence. Moreover, because of the law, the ban on advertising to the general public about investment opportunities is lifted which no longer forces companies to hire brokers.

Last but not least, companies in later growth stages can now benefit from lighter restrictions for publically selling stock. A company with 500 investors or raising $ 5 million previously had to register with the SEC which is costly and time consuming, consequences on filling out loads of legal forms and undergoing accounting audits. The law loosens requirements by raising several thresholds.

Seems like with the new law the American Dream is one step closer to becoming “real”.